Analysts: Lower used-car prices just around corner

Used-vehicle prices are expected to start dropping now and continue to do so in the near term, analysts predict, citing seasonal patterns.

Larry Dixon, an analyst at NADA Used Car Guide, says prices of 8-year-old and newer used vehicles were generally strong from March 31 through mid-April but flat compared with most of March.

But when April closes, Dixon expects that the average price of those used vehicles will have dipped about 2 percent from March levels, he says. Prices are expected to fall another 3 percent in May.

"A big part of what we see in May is what we've seen historically," Dixon says. "When we see [the prices] rise dramatically, they tend to fall dramatically. We've seen this cycle before."

Ricky Beggs, the editorial director at Black Book, agrees that used-vehicle prices have remained strong in April, but his research indicates that by mid-April dealers were bidding less aggressively.

Mid-sized and compact cars are among the vehicle segments expected to decline the most, both Beggs and Dixon say.

For example, starting in May through July, prices of some 2- to 6-year-old, mid-sized cars such as the Toyota Camry, Nissan Altima, Hyundai Sonata, Buick LaCrosse and Honda Accord are expected to drop 3.5 percent to an average of $10,610, according to Black Book.

Its data also reveal that prices in the 2- to 6-year-old compact car segment, which includes vehicles such as the Honda Civic, Toyota Corolla, Ford Focus and Dodge Dart, are expected to decline 3.4 percent to an average of $8,840 in that same time period.

Conversely, full-sized pickups should retain their value well, benefiting from strong demand from industries such as housing and construction and tighter supplies as a result of production cuts during the recession, Beggs says.

"We continue to feel like the full-sized pickup market will be one of the better markets, retention-wise, for the year," he says.

NADA guide's Dixon says that, compared with the prior month, used-vehicle prices were flat in January and up about 2 percent in February, as expected. But prices in March rose 3.7 percent, which was significantly higher than the 1 percent that had been forecast.

Dixon attributes the March price increase to pent-up demand from dealers who were hampered from buying vehicles in January and February because of harsh winter weather.

He also cites tight used-vehicle supplies resulting from rental-car companies holding their vehicles longer for two main reasons: first, to satisfy insurance replacement needs resulting from an increased number of weather-related accidents; and, second, to meet demand generated by massive vehicle recalls.

For example, General Motors promised its customers a rental car to drive while vehicles that have been recalled for defective ignition switches are repaired. Parts for those repairs are beginning to trickle into dealerships, and GM has admitted it will still be shipping replacement parts into the autumn, implying that demand for rental loaners will remain for the immediate future.

In the first quarter, auction sales of 2013 models, which are mostly retired rental vehicles, dropped 18 percent compared with sales of 2012 models in the first quarter of 2013, according to NADA guide data.

Auction sales of 2011 models, which are mostly off-lease vehicles, were down 4 percent in March from February. That was a bit surprising, Dixon says, since the volume of off-lease vehicles is set to grow this year. He suspects it was because dealers purchased many of those vehicles from lessors before they reached an auction.